Changes to Inherited IRA Rules

October 13, 2022

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Changes to Inherited IRA Rules

Hi! This is Chris Beale, managing partner and senior advisor for New England Capital Financial Advisors. Did the summer go by fast for you too?! I can’t believe we are already in the fall of 2022, mid-October. There have been many memorable headlines this year, but something happened in February that might have gone unnoticed by many.

On February 24, 2022, the IRS proposed an amendment to rules governing RMD’s (Required Minimum Distributions) for owners and beneficiaries of all tax deferred retirement accounts except Roth IRA’s. 

You may know the SECURE act - the cute name for Setting Every Community Up for Retirement Enhancement Act – moved the age, which required distributions must start from age 70.5 to age 72. Yes, the year you turn 72, you actually have until April 1st of the following year to take your distribution. In all subsequent years, the RMD must be taken by December 31st. Pretty straight forward. . . at least as straight forward as our lawmakers and the IRS can be. At least they got rid of the 70.5 date. I haven’t celebrated a half birthday since I was 5 and a half!

Just a reminder, there are no RMD’s for Roth IRAs. The IRS doesn’t care if you take money from your Roth or not because they get no tax revenue from Roth distributions.

Now let’s dive deeper into beneficiaries and inherited IRA’s. Multiple factors affect beneficiaries of IRA’s and retirement plans.

  • Did the account owner die before or after January 1st, 2020?
  • Is the beneficiary the spouse of the deceased account owner?
  • Did the account owner die before starting their RMD?
  • Is the beneficiary a designated beneficiary? (an individual) or an eligible beneficiary? An example would be a qualified see-through trust.

Most beneficiaries will need to liquidate inherited IRAs by the end of the 10th year following the year of the account owner’s death, assuming the owner died after January 1st 2020. This is known as the 10-year rule. Exceptions to this rule include beneficiaries who are:

  • A surviving spouse
  • A child of the owner who is under majority age
  • A disabled individual
  • A chronically ill individual.

This is where I think it gets really fun! Maybe not fun but it does get very interesting with potentially significant tax planning implications.

If the account owner dies before they were required to start their RMD’s, this is also called the Required Beginning Date or RBD. The beneficiaries of the inherited IRA can choose whether or not to take distributions in the first 9 years following the year of the owner’s death. But the account must be completely liquidated by the end of the 10th year. Now you can see some tax planning implications and why we get excited for our clients at New England Capital. Got a big bonus or sold a business in year 3 . . . Don’t take any distributions that year. Lost your job for several months in year 5 with a lower salary, or experience a large capital loss, take more of a distribution that year.

Other implications on whether or not take a distribution would include the effect on college financial aid, taxation of Social Security benefits, or a stealthy cost which could increase your Medicare premiums on Part B and Part D from what is called IRMAA or Medicare’s Income Related Monthly Adjustment Amount. These premium amounts go up based on annual income.

If the account owner dies on or after RBD (Required Beginning Date), the beneficiaries must take annual distributions over their life expectancy. You have no choice NOT to take the annual RMD’s. And the account must be liquidated by the end of their life expectancy or the end of the 10th year whichever comes earlier.

This last part was not clear when the Secure Act was passed, and many beneficiaries didn’t take their annual distributions.  There is a 50% penalty for not taking these distributions – a very onerous penalty! In fact, in public comments, individual taxpayers and industry groups such as the Institute of Certified Public Accountants are urging the IRS to change or kill the annual distribution requirements, or at the very least wave the penalties for people who inherited IRA’s or retirement accounts since 2019 and haven’t taken distributions.

If you’re like me, and really want a good time and have more fun, I suggest reading all 69 pages of the IRS publication 590-B. And if that’s not enough, just wait – I’m sure more IRS guidance and revisions will be published on this subject.

That’s all for now, we continue to watch the markets and monitor your accounts, especially as we navigate through this difficult time. If you have any questions about your accounts or beneficiary designations, please call us! We are here for you and your families. Thank you!



The IRS has released new guidance. It says that annual distributions for Inherited IRAs do not need to be taken for 2021 and 2022. The IRS did not publish guidance going forward, but they have waived the 50% penalty that would have been imposed had you not taken distributions in 2021 and 2022. If you did not take it and paid a 50% penalty, you can apply for a refund. My guess is that they will require you to take more annual distributions each year for those 10 years and be taxed on them. The IRS stated that new guidelines will be available in early 2023. Until then, stay tuned! When information does become available, New England Capital will be there to let you know.


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